What are important components to look out for in a contract?
In reviewing a written contract, there are several things that the parties need to be on the lookout for:
- The identity of the parties. Each of the parties needs to be expressly identified. If you are dealing with a corporate entity, you need to make sure the complete name of that corporation is stated in the contract. The only way to confirm that you have the complete name of that corporation is to call the state agency that supervises corporations to get the complete name. In addition, the contract should expressly identify the position of the person signing on
behalf of the corporation, so that it is clear that he or she is a corporate officer and therefore has the authority to sign.
- Consideration. The consideration must be expressly stated in the document.
- Governing law. It is a good idea to state in the contract what state's law is going to control this contract in the event there is a dispute that arises. This is important if you are entering into a contract with a person or entity that is not based in the same state where you are.
- Time of the essence. A time of the essence clause is significant if you are interested in prompt performance by the other party. If prompt performance is not a big deal to you, then you may not want a time of the essence clause. If there is a time of the essence clause in the contract and either party does not comply with the time requirements set forth in the contract, then that is considered to be a material breach of the contract.
- Survival. The term survival means that if one party to the contract were to pass away before there has been complete performance, then the obligation set forth in the contract would apply to the estate and heirs of that person.
- Modification. It is a good idea to expressly state in the contract that any modification of the contract must be in writing and must be signed by both parties. That eliminates any possibility of there being any oral modification which may be the subject of a later dispute.
- Waiver. A waiver is an intentional relinquishment of a known right. It is generally a good idea to have a waiver clause in the contract that says that the failure of either party to insist upon strict performance of any of the provisions of this agreement shall not be interpreted as a Waiver of any other default or breach of the same or similar nature. This will help prevent a situation in which a waiver of strict performance of a contract provision on one occasion will constitute a waiver of future breaches by that other party.
- Severability. This term means that if any provision within the agreement is found to be invalid or unenforceable, It will not effect the enforceability or validity of the other provisions in the agreement. Suppose for instance that a particular paragraph in your contract was determined to be either unenforceable or illegal by a court, that conceivably could invalidate your entire contract unless you have this clause within the contract.
- Assignability. The general rule is that any contract may be assigned unless the contract expressly says otherwise. Assignment of a contract essentially means that you are selling your rights under the contract to another part. For instance, if the contract that you are entering into is a contract for the purchase of an automobile, then you may sign a written contract agreeing to buy that automobile for a certain price. You may then assign it (sell it) to another party unless the contract says that assignment is not allowed. What you ore selling in this instance is the contract, not the car. You need to decide whether want a non-assignment clause within your contract.
- Integration. An integration clause in a contract says that this contract contains the entire understanding of the parties and that the parties expressly agree that there are no oral or written warranties, or relied upon other than what is expressly said within the written agreement including any post-contract discussions (discussions or communications that took place after the contract was signed) are not to be relied on by the parties. The word integration in context means that the entire understanding of the parties is integrated into the one document.
- Attorney's Fees. Attorney's fees are typically only recoverable if expressly provided for in the contract or if provided by statute. You should consider whether you want to be able to recover your fees if a dispute arises and if you do make sure to include an attorney's fee provision within the contract.
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